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Trivial Benefits Explained! – Tax Implications

Mohit Baheti | Online Account Filing

Mohit Baheti | November 19, 2020

Trivial Benefits Explained! - Tax Implications | Online Account Filing

“All work and no play makes Jack a dull boy” This age-old saying has been accepted even in the work culture. Successful entrepreneurs with the workforce, whether big or small, have always aimed to foster a work culture that is fun, amiable, and is such that inspires the employees to work with joy. This is in fact the widely accepted secret of having a loyal and hardworking workforce. Little things you do to make it happen, like buying them a birthday cake or a small present, maybe a bottle of wine or maybe a silly jumper for Christmas and if you really love your employees, take a step further and throw a full-fledged Christmas party! And the list is endless. Except for the fact that they all have pretty massive tax implications. Well… Then maybe don’t go any further… There can be tax implications and no tax liability. Confused, how?  Read ahead and find out more about trivial benefits;

Let’s begin with Flowers and Wines first and then take up Fine Dines in the next section.

Trivial benefits

“All good things come with consequences… like tax” HMRC.

No tax is payable when an employer provides trivial benefits for the employees. But what does trivial benefits mean? Simply speaking, gifting a bouquet of flowers to employees on their birthdays or a bottle of bubbly for their new home, etc. counts as trivial benefits. Now let’s go by the book and understand what HMRC trivial benefits mean. As per law, trivial benefits refers to an asset of which:

No tax is payable when an employer provides trivial benefits for the employees. But what does trivial benefits mean? Simply speaking, gifting a bouquet of flowers to employees on their birthdays or a bottle of bubbly for their new home, etc. counts as trivial benefits. Now let’s go by the book and understand what HMRC trivial benefits mean. As per law, trivial benefits refers to an asset of which:

  • Costs £50 or less per employee or if the benefit is provided to a group and you can`t possibly figure out how much exactly you spent, the cost incurred for every employee separately, then the average money spent per employee should not exceed £50. The magic £50 limit is inclusive of VAT
  • Is not cash or in form of a cash voucher, cash isn`t the king here for a change.
  • Is not a reward for an employee’s work or performance, should be given because you`re such a nice employer.
  • Is not in their terms of the contract. It is, in short, more of a chilled occasion.

If all the aforementioned criteria are satisfied then no tax or national insurance contributions need to be paid on the same. However, if any of the aforementioned conditions are not met then, the entire amount of trivial benefits becomes taxable as a benefit in kind right from 1 penny. Also, National Insurance contributions need to be paid on the entire cost and it will have to be reported as a trivial benefit in kind in P11D. So, it can turn out to be one of those Christmases if you don`t follow the criteria.

This is pretty important here! The £50 limit is not an allowance so each time a trivial benefit is provided, its actual cost shall be considered. For example, if a bottle of top-notch champagne, costing £70, gifted to an employee for his birthday, then since its cost is more than £50, the entire £70 will be chargeable to tax and NIC and not just on £20 (70-50).

Trivial Benefits for Directors

Trivial Benefits for Directors | Online Account Filing

There is no limit as to the number of times such benefits are given to an employee in a year, EXCEPT if he is a director of a ‘close company’, then there’s a limit set for it. Power comes with responsibility. The total worth of trivial benefits given to a director cannot exceed £300 in a tax year.

Social functions and parties

Time to talk about the fine dines, a garden party on Kensington Roof Garden (maybe after the lockdown) or a summer barbeque in Lincoln`s Inn Field, or maybe an Annual Christmas dinner at your fave restaurant. The cost of arranging these can also be made tax free if the conditions mentioned below are satisfied:

  • It should be a once in a year event, i.e. an Annual event (So, try not to overdo please, they already like you)
  • It should be open to ALL the employees. (No favoritism!)
  • It costs not more than £150. This limit of £150 is inclusive of VAT. (No shots!)

Not so sure if you crossed the limit? Take a deep breath and calculate the total cost of food, accommodation, entertainment, conveyance, etc. Divide this sum by the total number of attendees (yes including Gareth from the HR), i.e. the employees and the other guests. The resultant figure should be less than £150.

Similar to trivial benefits, this £150 limit for social events and parties is not an allowance, so if the amount spent on an event like this is more than £150, then the entire amount becomes chargeable to tax from 1 penny. (So don`t get drunk at your own party) Also, Class 1A National insurance will be payable at full cost. The employer will have to report such benefits on each employee’s P11D.

Still not convinced? Take a look at the example by clicking here

Conclusion

If you are a little cautious and work within the limits and conditions prescribed by HMRC then the value of “flowers, wines, and fine dines” will not be chargeable to tax and national insurance contributions. Hopefully now if we say “There can be tax implications and no tax liability” it makes a lot more sense to you.

Click here to read about tax implications on Christmas gifts.

Dave Jangid | Online Account Filing

Mohit Baheti | November 19, 2020

Note: Please note that the content of the above article and the aforementioned information are solely for the purpose of awareness and are informative in nature. The content is designed with intent to ease the understanding while preserving the essence and importance of the compliance rules and shall not be considered as an ultimate replication of the rules. Online Account Filing does not own any responsibility whatsoever for any unpleasant event that may arise due to the misinterpretation of a specific part or whole of the information.
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